US stocks sank on Friday after Federal Reserve Chair Jerome Powell delivered remarks from the Jackson Hole Economic Symposium. The Fed chief didn’t throw the markets any huge surprises, although you wouldn’t know that from the market reaction.

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The benchmark S&P 500, Nasdaq-100, and Dow Jones Industrial Average traded fell 3.37%, 4.10%, and 3.03%, respectively.

Mr. Powell’s commentary was preceded by the July personal consumption expenditures (PCE) price index update, which crossed the wires at an annual rate of 6.3%. The core gauge—a Fed favorite that strips out food and energy costs—rose 4.6% y/y, below the 4.7% y/y Bloomberg consensus. The easing in prices is encouraging news for the economy and much welcomed by monetary policymakers.

However, that didn’t stop Mr. Powell from keeping a tight grip on hawkish policy expectations. The central bank chief would be doing the economy a disservice by letting his guard down at the first signs of cooling prices. The market still punished equity prices, however. A multi-week rally that started back in June likely pushed stock prices too high. Mr. Powell stated on Friday that "The historical record cautions strongly against prematurely loosening policy.”

An overreaction? Or is the market appropriately pricing in risks from interest rates that are likely to not only go higher but stay higher for longer? Overnight index swaps and Fed funds futures both reflect higher and longer-lasting interest rates, effectively squashing the pivot thesis that drove equity strength over the past several months.

Asia-Pacific markets, although dealing with their slate of regionally-specific factors stemming largely from China, will offer the first sign if Friday’s risk-off Wall Street session is going to bleed over into broader market sentiment. It likely will. Europe, also with its own set of problems, will follow. A stronger US Dollar adds another headwind for European and APAC markets. The US Dollar DXY climbed nearly 0.5% Friday after Powell’s speech.

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